Smart Money. Smart Body. Smart Life.

7) Teach them to pay themselves first

Ever feel like the minute you get a paycheck, every bill is in line to get paid before you. By the time they’re done with you, there is nothing left? I can relate! I’ve learnt to take a proactive approach. I make a conscious decision to pay myself first. Teach your teen a core principle of personal finance and money management which is to pay themselves first. Teens, by nature, tend to think they’re invincible. The concept of saving money for the future can seem very foreign to them if it’s not a part of their upbringing. See “Top 7 money management secrets you must teach your child” for ways to introduce these money management ideas to them early.

Have them save 10-20% of any money they get for themselves before meeting other obligations. You may even take it an extra step by having them save 50% or more of their money to invest and learn to live frugally. Many folks have become millionaires before age 30 just by doing this. Saved money can be used for investments, saving for a rainy day or other opportunities that will prevent them from living paycheck to paycheck.

6) Have them plant a retirement seed

If there is one financial concept I wish I knew about in my teens, it would for sure be compounding interest. Compounding interest is the idea that to save $1 million dollars by age 65, you would only need to save and invest $350/year at a 6% interest rate starting at age 20. If you started saving and investing later on, say at age 55, you would have to save $6,000/year at 6% to get to $1 million by age 65. Compound interest allows you to earn interest both on your savings as well as on interest from your savings. The younger you start, the more lucrative it will be for you.

Teens have an edge because of their age. Encourage your teen to leverage this and start saving small amounts and investing early. I sure wish I did! Open up their first bank account and teach them how to actively manage it. If they have a job, help them set up a Roth IRA. Once they get their first paycheck, open up an investment fund they can start to pay into. The Vanguard Group offers many low-cost index funds they can start with.

5) Teach them how to use credit cards

A study in the International Journal of Business and Social Science found that 70% of college students had a credit card and just 9% of them pay it off at the end of each month. Once your kids get to college they will be flooded with credit card companies on campus offering them all sorts of free perks for signing up. Before this happens, teach them that a credit card, if not used properly, can be a dangerous weapon leading to consumer debt that can take years to pay off. Teens should learn the difference between cash and credit, when use of a credit card can be beneficial to them and how to use it.

Credit is borrowing money that they have to pay back with interest. In my opinion, just about the only reason a college student needs a credit card it to build credit. A good credit history is helpful later on to save money on loans, a mortgage, etc. To build credit, they can get a low-interest credit card, use it for only purchases they can pay off and pay on it weekly until its paid off at the end of every month. They should not have more than 1 credit card at a time. If they can’t pay off the card before the end of the month then they should not make that purchase. Developing a discipline of learning how to use credit cards and not letting the card use them can save them from future financial havoc.

4) Give them their first “Job”

I’m not a big proponent of giving kids an allowance for just breathing. Or paying them just for doing their chores. Chores should be part of teaching them responsibility and taking ownership of their home. I do believe once your child is old enough, have them do special projects you can pay them for. Teenagers have plenty of free time—fall break, summer break, winter break, spring break. And they always seem to need money. Have them take part in thinking up the project. It could be anything from clearing out and rearranging a space in your home to learning how to set up a website or blog to thinking up a problem and developing a solution to it (most successful entrepreneurs started this way.)

If you own a business, have them take on special projects in your business you can compensate them for. Treat them like an employee. Expect them to be at work on time and to be diligent and proactive. Provide positive feedback if they deliver good work and recommendations for improvement if they don’t. Put them on the payroll and teach them how to read their pay stub. If possible, set up their pay so 10-20% is automatically sent to a savings account to encourage automatic savings from each paycheck. They will learn that money is earned, not just given away. They will also learn what makes a good employee. As they get older, help them find a part-time job that won’t interfere with their schoolwork. Highly selective colleges place a high value on applicants who are able to juggle extracurricular activities like part-time work and excel in academics. See “Top 7 secrets to prepare high schoolers for IV league school admissions”.

3) Show them the importance of giving

Allow them to see you give to your church or other charities. I found that my kids at a young age had a natural desire to give money away. My 7-year-old once wanted to give a homeless man all the money in her piggy bank. But as they get older they lose this instinct and the yearning to keep money for themselves grows. As they are learning the value of money, it’s important that they still keep that spirit of allowing the benefits of money to flow through them to help other people and causes. The more money they allow to flow through them to help others, the more they will be blessed with.

2) Teach them to budget

Their first budget can be a simple one. The goal is to get them in the habit of keeping track of how much money is coming in and going out each month. Get them comfortable reading their bank statements and interpreting information on their spending and saving habits from the numbers on the page. They’ll be more likely save and invest more and less likely to indulge in impulsive shopping habits. Enroll them in an online personal finance course. Additionally, they can download sample budget worksheets and financial goals charts at balancetrack.org.

1) Teach them how to continually educate themselves about money

The difference between those that become millionaires and those that don’t is constant education. Successful people are constantly creating avenues to educate themselves. This could be through reading books, online courses etc. If they have a question about money, teach them how to look up the question online and for resources on how to educate themselves in those areas. And many of the resources are free. Khan Academy offers free online courses on just about anything imaginable. In providing them with fish be sure to teach them to fish.